Moving averages, and what they compute

An average is arithmetic, not analysis. Knowing exactly what it computes prevents most of the ways it gets misused.

What it is

Add the last n closes, divide by n, plot the result. Tomorrow the oldest close drops out and the newest drops in. That is the whole mechanism.

So it lags by construction: it is describing a window that ends today and began n periods ago. A long average turns slowly because most of its window is old, not because it is measuring something more durable.

Two things people read into it that are not there

• Support. Price bouncing off an average is the attention mechanism from lesson 6, not the average doing anything.
• A signal. A crossing is two windows changing their relative order, which is a description of what has already happened.

The index-specific caution

An average computed across a futures roll includes a step nobody traded - module 2 lesson 7. On a continuous chart, an average spanning a roll date is partly measuring the splice.

And an average on the cash series excludes overnight hours entirely, so the same average on the 24-hour series is computed over different data with the same name. Both are correct; they answer different questions.

Where it genuinely helps

As context rather than as a trigger. Whether price is above or below its own recent mean, and whether the mean is rising, are cheap summaries of where you are - and they are honest as long as nobody claims the line has power.